KUALA LUMPUR (March 30): United Overseas Bank (UOB) Asset Management (Malaysia) Bhd is advocating a barbell approach when it comes to investing between value and growth sectors.
During a virtual press conference, UOB Asset Management chief investment officer Francis Eng said between equities and fixed income instruments, the asset manager’s preference at this point of time is for equities, as they typically fare better amid the beginning of a recovery.
He noted that based on long-term trends, equity markets are able to absorb increases in interest rates so long as they are moderate.
“We are advocating a barbell approach, where you have some portion that is in the value or reopening sectors, and a portion in growth sectors.
“What we have seen in the last couple of quarters is at different points there may be switches between value and growth. We think it is very difficult to time it, so we think have both. Take companies which you think are best in class to benefit from either value or growth,” said Eng.
Eng noted that Malaysia’s economic recovery has been a bit uneven, given that at the start of the year the country had to deal with the reimposition of the movement control order (MCO 2.0).
He augured that for the next couple of quarters, an improvement in the country’s economic health will be present, as well as benefiting from a general improvement in prices of commodities such as crude palm oil and Brent crude.
As such, Eng opined that UOB Asset Management is quite positive on Malaysia’s economic recovery, as well as on the value and reopening sectors.
“This is because markets typically react ahead, we are anticipating a recovery and have already positioned for a recovery,” Eng said.
Specifically, Eng said sectors such as financial services, property and real estate, and consumer might see a quicker recovery.
Meanwhile, UOB Asset Management chief executive officer Lim Suet Ling noted that some players in the transport sector could see a recovery as countries begin to approach herd immunity.
From a valuation perspective, Lim viewed that the value sector is also proving to be attractive, after having been depressed for some time.
“There will still be some companies that are facing cash flow problems and bankruptcy potential there. Hence, the selection has to be a little bit more careful. It is not just taking any stocks that are available in these sectors.
“It is exciting for the market and investors in the long term because interest rates are unprecedentedly low and are likely to remain low,” she viewed.
In terms of how the FBM KLCI will perform at the end of the year, Eng opined that he is broadly expecting the local benchmark index to be “another 5% from where we are”.
He underscored that one should not be too fixated with index levels.
“Whether the market moves up or down, as investors we want to be better than how the market is doing,” Eng viewed.
Lim also stated that the index is very broad and an overall indication of how the economy is moving.
“Most of our funds, especially our Malaysia-related funds, have outperformed the KLCI, adding value to the client,” Lim.
When queried, Eng said that in the medium to long term, UOB Asset Management has been able to comfortably generate high single-digit average absolute returns for Malaysian equities above the index.
Lim also viewed that interest rates were at 3% to 4% previously, but now that interest rates are lower, the final absolute return has to be adjusted down.
“The same as what we have been seeing with the EPF [Employees Provident Fund] which has adjusted down [its] dividend payout as well. We cannot be staying at high expectations for too long, it is all relative to the risk-free rate, [which] is a very low level and is expected to stay low for a while as well,” Lim said.
At 11:53am, the FBM KLCI was down 0.3% or 4.91 points lower at 1,606.37.
